investment funds or single-asset
JVs. While the vehicles were
not created to hide the financial
position of REITs, as some
have suggested, the companies
did not exactly go out of their
way to provide the same level
of disclosure for their funds as
they did for balance sheet assets. Specifically, some REITs
have downplayed the significant
leverage issues in the vehicles
and provided few holding details. While the credit crisis has
forced REITs to start bridging
the disclosure gap, we have yet
to reach the other shore.
The issue of transparency will
impact the valuation ascribed
to existing and future JVs. The
public market no longer rewards
REITs with high valuations for
JV fee streams and remains sus-
picious of the long-term viability
of asset management businesses
in the REIT space as many funds
have already been liquidated
or repurchased by the REITs
themselves. In addition, we
are starting to see lawsuits and
shareholder activism. Better fund
corporate governance will also
be needed with fund investors in
order to raise and invest capital.
Halle: Cedrik highlights two
very important issues, transpar-
ency and simplicity. History
strongly suggests that transpar-
ency will be critically important
over the next several years as in-
vestors re-assess risk in all asset
classes—it’s always the case
after a severe market correction.
REITs that hope to regain in-
vestors’ trust must demonstrate
a clear alignment of interest.
Investors have been burned and
they will exercise caution when
re-entering the market. Those
REITs with a clear and trans-
parent platform, will be amply
rewarded.
Brown: Concerns over the po-
tential for increased financial
leverage and less transparent
operating results are valid, but
counter-balanced by a belief that
prudent leverage and sound op-
erating results are a by-product
of a management that has con-
sistently demonstrated prudent
use of leverage and sound opera-
tional performance in the past. F
Christopher M. Wright is a
regular contributor to REIT.
Ad Index
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Healthcare Trust of America . . . . . . . . . . . . . . . . . . . . . . . . . 27
Hogan & Hartson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Inland Real Estate Corporation . . . . . . . . . . . . . . . . . . . . . . . 29
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RealFoundations .......................... BackCover
SNLFinancial ..................................... 11
Sorgente Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
WasteRemedies ................................... 44
Westdeutsche ImmobilienBank AG . . . . . . . . . . . . . . . . . . . 47
WPCarey .......................................... 1
